When I fight people and hit them plenty of times their life dosnt seem to go down, but when im hit it goes down like it is supposed to. It really confuses me because I don't know how much life that person has left exactly. Could it just be lag? my connection is about 26.4 bps. Could it be because of my connection speed? Or are these people cheating in some way?

Problem is lag. period... TMy said there is no cheat, I trust him.
The funny thing is, you are getting your A&#36&#36 kicked on the other side and when you are getting hit its when it is "synced".
Hope this might help you but if you want to know if your opponent(S) is kicking the crap out of you take a look at the power bar this usually goes either way after it sync.